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India’s Trade Gap At Its Widest In Three Years As Crude, Gold Imports Surge

India’s trade deficit in December was at its widest in over three years as a surge in import of gold, precious jewellery and crude oil offset rising exports.

The trade deficit, the gap between exports and imports, stood 41.1 percent higher compared to last year at $14.88 billion, according to data released by the Ministry of Commerce. The deficit was at $13.83 billion in November.

India's import bill went up 21.12 percent over last year to $41.9 billion. The rise in imports was due to higher prices of gold and crude oil as the two commodities form nearly one-third of the country’s inbound shipments.

The trade data shows that core import growth has remained elevated through 2017, reflecting domestic supply chain disruptions and improving domestic demand after the twin shocks of demonetisation and GST, said brokerage Nomura in a report.

Overall, the trade data suggest that even as the global recovery should benefit exports, higher commodity prices and the ongoing cyclical recovery will keep the trade deficit elevated.

Nomura Report

Gold imports in December rose 71.52 percent from last year to $3.4 billion, while prices increased 1.7 percent from the year-ago period. Gold imports recovered after falling for three straight months as demand was hit by disruption from the Goods and Services Tax rollout.

Oil imports increased 35 percent to $10.34 billion after the benchmark Brent crude prices went up nearly 19 percent in December. Crude oil too has surged to its highest in three years touching $70 a barrel after four straight weeks of gains.

Since India imports nearly 80 percent of its oil needs, fluctuation in oil prices have a cascading impact on the trade deficit. “Even an average annual $1 increase in oil price can lead to an increase in oil imports by $1.56 billion, annually,” Soumya Kanti Ghosh, chief economic adviser at State Bank of India, had written in a research note in November.

Exports increased 12.36 percent to $27.03 billion as India continued to ship engineering goods, organic and inorganic chemicals and petroleum products in large quantities. Shipments have picked up again after having declined for the first time in 15 months in October.

Export of engineering goods, the largest contributor to India’s outbound shipments, rose 25.32 percent over last year to $7.3 billion. Gems and jewellery, which is typically the second largest contributor to India's export basket, saw a 2.38 percent growth to $3.2 billion.

The import of project goods and transport equipment fell 15 percent and 24 percent, respectively. Project goods are goods used for infrastructure development, funded by both public and private sectors. Project goods imports fell for the second straight month after declining 46 percent in November.